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20. Chappelles Comedy Company is expected to increase dividends by 28% for the next two years. After the second year, divide

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Answer #1

20.

D0 = $2.68

D1= $3.4304 ($2.68*1.28)

D2 = $4.3909 ($4.3204*1.28)

Now, as the growth rate will increase indefinitely,

P2 = D3/ Re - G

= 4.3909*1.0525/0.11-0.0525

= $80.3722

Now, the price of the stock today is :

$3.4304/1.11 + $4.3909/1.11^2 + 80.3722/1.11^2

=$3.0905 + $3.5638 + $65.2319

=$71.8862

The price of the stock today is $71.8862.

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